Blockchain-based game marketplace DMarket has raised $6.5 million in venture funding, and it also announced that it has added video game pioneer Trip Hawkins as a board member.
The funding will help DMarket expand its decentralized, cross-game marketplace, which lets gamers freely trade and sell in-game assets, earning real value for those virtual items. But the addition of Hawkins also brings a measure of respectability to blockchain games, which have struggled to gain mainstream acceptance and business traction.
DMarket has built an in-game item trading platform based on blockchain, the transparent and secure decentralized ledger, which can confirm who owns a particular item and whether it is unique. Game developers, players, influencers, and brands are able to co-create video game content securely and generate profit while continuing to play and have fun in different gaming multiverses, said Vlad Panchenko, CEO of DMarket, said in an interview with GamesBeat.
Almaz Capital led the round, with support from Xsolla. With the new funds, DMarket will expand its in-game ecosystem. The company is planning to hire engineers and additional executives in the next three months.
In the uncertain times of the pandemic and economic crisis, DMarket hopes to get more momentum in creating a virtual economy, allowing more people to make a living trading virtual goods, well beyond those in the gaming industry.
Alongside the investment, Hawkins is joining DMarket as an independent board member. He is the founder and former CEO of Electronic Arts, 3DO, and Digital Chocolate. Сalled the “King of the Nerds” by The Economist, he led EA for more than a decade; the company is valued at over $30 billion today.
Panchenko said he met Hawkins about a year and a half ago and they got along well. Hawkins had studied the space and knew how to “finish my sentences,” Panchenko said. “He has had quite interesting experiences. I was hoping he would take the board position.”
Panchenko said his company is already paying out millions of dollars a month to users who are trading wares, known as skins, in games like Counter-Strike: Global Offensive, Dota 2, Team Fortress 2, or Life Beyond. Users trade skins for weapons or other decorative items that change the look and features of their items. A couple of more game worlds should come online soon with DMarket, Panchenko said.
DMarket had to develop technology for blocking fraudulent trades or money-laundering transactions. It figures out things like cross-border payments, taxation, and exchange rates.
“We’ve had algorithms for now that help us be better than others in the market,” Panchenko said.
Why Hawkins signed up
Hawkins said in an interview that DMarket is at the center of multiple growth trends: advanced social games, virtual goods trading, fashion, esports, and blockchain.
He noted that today’s gamers don’t really own the virtual goods they pay real money for. If the game company shuts down a game, the virtual goods have no value and the gamers can’t take it to another game. This inhibits the adoption of virtual game worlds and economies, Hawkins said.
“Guys like Vlad are fund to work with and it’s a real pleasure for me to be able to share some of these lessons that I learned in my career with this next generation young, talented technology gurus,” Hawkins said. “And as far as blockchain, what I would say is that blockchain is kind of the bonus element for this concept. I think there are other fundamental things about the market that are leading edge. Clearly, there’s an entirely new kind of social platform today that isn’t a horizontal utility service like a Facebook.”
He added, “The mainstream game business is getting really big. You’ve got all the synergy between the social games and esports and virtual goods economies and the cloud. And in that context, DMarket is riding a lot of these themes and breaking some ground by saying, ‘How about a marketplace where virtual goods can be traded independently outside of the ecosystem of the game itself?’”
Hawkins said a lot of the blockchain world has been obsessed with speculation and getting rich quick. That hasn’t been good, but hardcore gamers have been fascinated by blockchain as well and they have been willing to try out blockchain-based trading. These forces have both propelled blockchain forward and held it back.
Hawkins said he liked Panchenko’s company as it showed it could operate out of multiple locations, including places where development costs are inexpensive. Ukraine is a good place, Hawkins said, because DMarket can hang on to its team there more easily than they could have in a place like Silicon Valley.
DMarket has 75 employees, about 70 of them in Ukraine. Other companies in the same space include Animoca Brands, Mythical Games, CryptoKitties, and Forte. But DMarket isn’t making its own games, nor is it issuing its own cryptocurrency. Its focus is on making tools that developers can use to build in-game marketplaces and enable item trading, Panchenko said.
Panchenko previously raised $19 million in 2017, and the company has offices in Kyiv, London, and Los Angeles. DMarket’s partners and customers include Xsolla, Unity, 4A Games, GSC Game World, Darewise, Playkey, Kiss, and Tatem Games.
Game makers can use the DMarket applications programming interface (API) to make the items in their games tradable. In this way, the developers don’t have to create their own independent markets. They will enable portability of assets across games, and that should encourage players to spend more, and it should generate more money for the game makers.
Toward Ready Player One
Some dreamers hope that blockchain will enable cross-game activity and that will be the precursor of the Metaverse, the universe of virtual worlds that are all interconnected, like in novels such as Snow Crash and Ready Player One.
Panchenko said the progress is slower than he like on this front, but he is talking with major brands now and he hopes by the fall they will engage. He is signing up more games to use his in-game marketplace.
“Ready Player One? I want to live in that world,” Panchenko said. “But to bring it quicker, I need to build the business of the game developers. This is step No. 1. If I combine this business and my vision for the future, it will happen quicker. When I see other people making a living in virtual worlds, that’s like magic for me.”
Another thing that has to happen before the Metaverse is the acceptance of blockchain technology in the mainstream. Asked how long it will take for blockchain to do that, Hawkins said,”I don’t really know how long it’s going to take. Obviously, there are creative things people do in the blockchain space. And I think virtual trading is going to be a really big deal whether blockchain is the key or not. I personally feel kind of patient about how the blockchain side of things. I don’t think you can put any particular expectation about widespread public adoption of specific commercial applications for blockchain on a rigid schedule, and forecast when it’s going to happen. What I think is much more predictable is that virtual goods are an enormous chunk of business in the future.”
Hawkins noted the big companies have always been slow about adopting new technology. Apple, for instance, was quite slow to embrace in-game virtual item sales that you could buy with virtual currency. That was in the early days of the app store, but eventually this kind of in-app purchase became the primary way to monetize free-to-play mobile games.
“It’s now a gigantic economic activity,” Hawkins said. “Now everybody cares about virtual goods. We are growing the gamer audience at such a fast clip.”
Hawkins warned that some blockchain companies that took advantage of the cryptocurrency boom and did initial coin offerings (ICOs), which are now impossible to pull off in the U.S. regulated market, may not be able to have access to capital again.
“There was clearly a blockchain bubble, and a lot of companies took advantage of that,” Hawkins said. “The venture community was more thoughtful. They avoided some of the companies that did ICOs and were shut down. But there is plenty of potential for a company that is creating an innovative marketplace.”
Panchenko said that the platform companies should pay attention. Many different companies are building their own platforms with stores and distribution. When you launch a new console like the PlayStation 5, you want players to stay inside your ecosystem. The way to do that is to move players from one favorite game to another favorite game.
“The perfect way to do that is on the blockchain, where I have some piece of memorabilia from one game and I can use that in another game. It’s all under one umbrella,” Panchenko said.